The Chinese authorities have long made clear their misgivings about cryptocurrency. None of that stopped it from becoming the world capital for crypto.
As far back as 2013, the government banned banks from using Bitcoin and other cryptocurrencies. In 2017, domestic exchanges and initial coin offerings were also proscribed.
And this year, it banned mining – the mathematical process by which new Bitcoins and other currencies are created.
Now the People’s Bank of China (PBoC) has decided that any business related to virtual currencies is illegal. It is the ban to end all bans.
So it’s not quite out of the blue, given that long history. The question is why now.
The official reason is because cryptocurrency speculation “disrupts the economic and financial order, and breeds illegal and criminal activities”, according to the PBoC.
Well, that’s always been the case. And it’s not clear how much crypto is really used in China, let alone for those nefarious activities.
Fears are rising about property giant Evergrande going bust. Pic: AP
I’d suggest two other reasons.
The first is the Chinese Communist Party’s permanently unslaked thirst for control.
We’ve seen all sorts of regulatory crackdowns here this year, from tech to TV to education, aimed at reasserting the Party’s position.
Including virtual currencies on the list – as they exist outside the Party’s grasp – fits neatly into that. If every other institution is extending its power by regulation, the PBoC isn’t going to miss its chance.
Second, worries about the economy. To that point, the official explanation makes some sense.
But there is a bigger story. Many people are preparing for an economic slowdown, especially with fears about property giant Evergrande going bust and the implications of that for the wider economy.
The crackdown and the slowdown both have the same natural result – people wanting to move their money out of China. Crypto is one of the more effective ways of doing that, given China’s strict capital flow controls.
And so the ban comes at a very opportune moment.